Entertainment

Economics of New Media: Pay to Play or Free?

There is a truly interesting discussion going on now spanning a couple of blogs on the issue of marketing, advertising, the Internet, and the business model of free. I've try to stay within my pay-grade when I take

apart such finely thought out analysis, but, I'm pretty sure on this one, given my professional history in dealing with these very specific topics addressed by bloggers Steven Hodson, Scott Karp and Alexander van Elsas.

FREE can lead to a lot of things (see the overview at the beginning) but it often leads to advertisement. It sounds like a great deal. You get the service for free, and the costs are covered by the advertisers. Although it might work well in some cases I believe that in most cases this type of forced attention doesn’t provide the user or the advertiser any value.

Traditional advertising formats FAIL on the web. By traditional advertising formats, I mean display ads, video ads, and any other ad whose format and value proposition approximates or imitates that of an offline advertising format.

Google is the ONLY company that has succeeded in web advertising. Why? Because they perfected search advertising, an entirely web-native form of advertising, whose value proposition is perfect for the web and which has no offline analogue.

Why do traditional advertising formats fail on the web? Because people have no patience for them, as they did in traditional media, where we were habituated to looking at print ads or watching TV commercials.

The only example where advertisement works right now is in search. The difference there is that the advertisement itself provides the user value. If I’m already looking for something then advertisement can actually serve a purpose. It’s what Google has perfected. There isn’t a single other example thinkable where advertisement is so effective. It is also the main reason why I believe that the true value of social advertisement lies outside of social networks. Advertisement should never, ever, interfere with social interactions between friends. It doesn’t belong there, it merely trespasses.

The problem is, and this is completely understandable given the current state of affairs and the unique positions of all the commentators involved, all of this comes from a perspective of content publishers trapped inside the Web 2.0 and Silicon Valley bubble. If you look at it from a marketing and advertising perspective, a position from which I've lived as a contractor, professional and adviser in the past, you can plainly see that advertising does work outside the narrow parameters of Google Search ads. Certainly AdWords/AdSense is a uniquely profitable and effective form of advertising on the Internet, but it absolutely isn't the only example of that. More on that in a bit

What is the solution proposed to counteract ad-based FREE? Micropayments, functionality and content behind pay-walls, of course. Van Elsas and Karp join up with the respectable likes of Allen Stern from CenterNetworks in suggesting that content shouldn't be so free and subsidized. The problem is, at least for the content that these folks all have in mind (mostly text-based social media content like blogs and social networking sites), free is the limit to what people are willing to pay. Steven Hodson puts a voice to that sentiment today:

As a internet user I would dread the day that the pay for services model becomes the norm. We have already been down that road to a certain extent with Web 1.0 and all the different subscriptions and other methods of getting paid for your work. It didn’t work then and it wouldn’t work now unless you want to widen the technological divide even further than it is.

The fact is that I and a large percentage of the people who are on the web don’t have credit cards which is the principal method of payment accepted by any service wanting to be paid. Even today we are locked out of services like iTunes store or many other services that do business strictly on the web. Then as a subset of that there are also people who don’t have any money beyond what they need to keep them floating at the poverty line. Should all these people be excluded from being able to use the web to its fullest?

Let me backtrack a bit in my own personal history. A number of years ago, back at the beginnings of the podcasting revolution and during the October surprise for the 2004 US Presidential election, the faux pas of Dan Rather put to the forefront in the blogosphere the discussion as to whether or not the Old Media was irrevocably broken. Bias, in all its forms, was discussed to the point of complete abstraction from the politics of the issue.

I arrived at the position, at the time, that it was the fault of Old Media that we had such a shoddy news delivery system in play. At the time, we had nine major media conglomerates that ran everything we consumed, from newspapers to radio to TV to movies to books. That has since consolidated down to a handful of companies. Within those organizations, though, a monoculture arose from the top down that created predilictions towards stories that favored not just certain political angles, but certain other types of companies.

Thanks to several insightful bloggers and pundits, I realized that in all existing media models, the product is not the news, the product is the news consumer. The responsibility for the news organization is not to the news consumer, since they don't pay the bill, it is to the advertisers. On several levels, being called a product is very unsettling.

Given the prevailing winds of media consolidation that still blow today, do you think any of the major networks will ever give fair shakes to stories of anti-trust, for instance (which, incidentally is one of the biggest factors that I believe will lead to us living in a non-net neutral Internet)? Do you think that GE owned subsidiaries are ever going to be sufficiently critical towards their corporate parent's energy and ecology policies?

Thus, the need for decentralized media was made clear. Not only should media be decentralized, but those media participants should be divorced from their advertising partners.

Shortly thereafter, I made the decision to become a full-time freelance journalist. I very quickly learned the reality of being in the New Media, and that is that you take advertising in whatever form you can get it, because you need to eat. Little by little, my high-minded ideals went out the window as I succumbed to the practicalities of being a professional journalist, blogger and podcaster.

Back to the meme at hand, though, where does this leave us? Well, it leaves us with what is, and what should be.

What is: there are a wide variety of marketing types that work beyond Google ads. Podcasting ads are a perfect example of that, and there are a number of reasons why these work exceptionally well, despite the fact that the resemble Old Media style advertisements (most of these reasons are topics better saved for another day or our company advertiser media kit). The biggest reason amongst them is that Old Media ads are surprisingly effective themselves. It isn't that the Old Media ad models don't work. You've always got "good ads" and "bad ads" - it's a matter of the ad consumers taste and the demographic targeting that determines that (Think Superbowl advertisments. They don't all suck). What makes Old Media advertising fail is mostly the shrinking audiences.

Beyond that, there is still a Web 1.0 mentality with a lot of people in the Internet advertising and marketing sector with a mindset (that continues to infect the blogosphere, by the way) that every advertising business model should be set up on the "1, 2, 3 Profit!" model. The more CEOs I talk to on Mashable Conversations, the more I learn that Web technology is becoming a full fledged industry: often nuanced, boring to the casually interested, and ever-evolving and complex to navigate.

That leads me to ...

What should be: Google ads at least one thing right. They divorce the media producers from the advertising sales, and they treat the consumer as a product without devaluing them so much as to give them irrelevant advertising content.

The problem is that this ad model isn't followed very closely, or at all, with most other ad purveyors or other media types. For some reason, the eggheads at Google haven't figured out a way to apply their technology to podcasting or embedded video in a way that makes the ad type viable to the content producers. They haven't figured out a way to really do anything other than search advertising really well, in fact. Most blogs-as-business run Google ads somewhere, but they are far from the profit center for them.

The best way to make money as a content producer is to do direct sales, according to folks who've been there (I concur). Of course, this leads us down the primrose path to replacing the broken Old Media with a broken New Media. Beyond that, though, it puts publishers in a mentality to where they need to game the system to make money, rather than produce quality and meaningful content. In other words, I'd rather have my sales team treating you like a number than me treating you like a number (much like I'd rather have my lawyer be a merciless jerk than me be a merciless jerk).

Overall, though, bloggers, podcasters, video producers and distributors should look at what other assets that they have which contain value aside from the content and the attention. Many bloggers and podcasters have made very visible and successful livings using their media platforms as a way to subtly advertise that they're a know-it-all on certain topics (though I think they prefer to be called experts, or sometimes mavens). Similarly, I've seen some very interesting business models arising from the concepts of "freemium," where basics are free, and consulting and additional services cost money. None of this touches the wealth of demographic and targeting data lying underneath the surface of use to developers, analysts and yes, even advertisers that are contained in the un-crunched log files.

Essentially, for all our freewheeling Web 2.0 analysis in the blogosphere, most of us aren't thinking far enough outside the box to create the income and profit strategies available to us on the FREE business model.

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